November 30, 2009
Christopher Booker, in the Telegraph, UK, elaborates on the scandals of Climategate.
...There are three threads in particular in the leaked documents which have sent a shock wave through
informed observers across the world. Perhaps the most obvious, as lucidly put together by Willis
Eschenbach (see McIntyre's blog Climate Audit and Anthony Watt's blog Watts Up With That), is the highly
disturbing series of emails which show how Dr Jones and his colleagues have for years been discussing the
devious tactics whereby they could avoid releasing their data to outsiders under freedom of information
laws.
They have come up with every possible excuse for concealing the background data on which their findings
and temperature records were based.
This in itself has become a major scandal, not least Dr Jones's refusal to release the basic data from which
the CRU derives its hugely influential temperature record, which culminated last summer in his startling
claim that much of the data from all over the world had simply got "lost". Most incriminating of all are the
emails in which scientists are advised to delete large chunks of data, which, when this is done after receipt
of a freedom of information request, is a criminal offence.
But the question which inevitably arises from this systematic refusal to release their data is – what is it that
these scientists seem so anxious to hide? The second and most shocking revelation of the leaked
documents is how they show the scientists trying to manipulate data through their tortuous computer
programmes, always to point in only the one desired direction – to lower past temperatures and to "adjust"
recent temperatures upwards, in order to convey the impression of an accelerated warming. This comes up
so often (not least in the documents relating to computer data in the Harry Read Me file) that it becomes the
most disturbing single element of the entire story. This is what Mr McIntyre caught Dr Hansen doing with his
GISS temperature record last year (after which Hansen was forced to revise his record), and two further
shocking examples have now come to light from Australia and New Zealand.
In each of these countries it has been possible for local scientists to compare the official temperature record
with the original data on which it was supposedly based. In each case it is clear that the same trick has been
played – to turn an essentially flat temperature chart into a graph which shows temperatures steadily rising.
And in each case this manipulation was carried out under the influence of the CRU.
What is tragically evident from the Harry Read Me file is the picture it gives of the CRU scientists hopelessly
at sea with the complex computer programmes they had devised to contort their data in the approved
direction, more than once expressing their own desperation at how difficult it was to get the desired results.
The third shocking revelation of these documents is the ruthless way in which these academics have been
determined to silence any expert questioning of the findings they have arrived at by such dubious methods –
not just by refusing to disclose their basic data but by discrediting and freezing out any scientific journal
which dares to publish their critics' work. It seems they are prepared to stop at nothing to stifle scientific
debate in this way, not least by ensuring that no dissenting research should find its way into the pages of
IPCC reports.
Back in 2006, when the eminent US statistician Professor Edward Wegman produced an expert report for
the US Congress vindicating Steve McIntyre's demolition of the "hockey stick", he excoriated the way in
which this same "tightly knit group" of academics seemed only too keen to collaborate with each other and
to "peer review" each other's papers in order to dominate the findings of those IPCC reports on which much
of the future of the US and world economy may hang. In light of the latest revelations, it now seems even
more evident that these men have been failing to uphold those principles which lie at the heart of genuine
scientific enquiry and debate. Already one respected US climate scientist, Dr Eduardo Zorita, has called for
Dr Mann and Dr Jones to be barred from any further participation in the IPCC. Even our own George
Monbiot, horrified at finding how he has been betrayed by the supposed experts he has been revering and
citing for so long, has called for Dr Jones to step down as head of the CRU. ...
Ed Morrissey posts on the New York Times editorial board taking Obama to task over his
Middle East foreign policy blunders.
It only took them three years to figure it out, of course. The Gray Lady’s ire focuses on the disaster Obama
has made of the Israeli-Palestinian peace process, which is usually a rolling disaster anyway. American
Presidents haven’t been able to do much to make it better, but as the Times explains, this one’s made it a lot
worse than it had to be — mainly because he’s a diplomatic novice with team full of incompetents (via Geoff
A) ...
...The editors go on to castigate George Mitchell a little more for blowing the effort with the Saudis, who took
their signals from Team Obama. When Obama publicly demanded a halt to all settlements, the Saudis
made that their line in the sand. The Times scolds them for doing so, but the fact is that once the US made
that demand, it put all the pressure on Israel and took all the pressure off of the other parties in the talks.
As the editorial says, Obama and Mitchell couldn’t think past their own opening move and game out the
possibilities. Why might that be? The foreign-policy team that includes Emanuel and Samantha Power (at
the National Security Council) has ideological interests in getting Israel to surrender. Power suggested a
few years ago that the Western nations should invade and occupy Israel in order to set the Palestinians
free. With that kind of advice flowing at the White House, this diktat on settlements is hardly surprising, nor
is its end result.
When Newsweek and the New York Times tells a Democratic president that he’s screwing up foreign policy,
it’s time to clean house and start getting professional help. Unfortunately, neither of these publications
considered the ramifications of endorsing an inexperienced ideologue for the top job when it counted.
And here's the New York Times editorial.
...Peacemaking takes strategic skill. But we see no sign that President Obama and Mr. Mitchell were
thinking more than one move down the board. The president went public with his demand for a full freeze on
settlements before securing Israel’s commitment. And he and his aides apparently had no plan for what they
would do if Prime Minister Benjamin Netanyahu said no.
Most important, they allowed the controversy to obscure the real goal: nudging Israel and the Palestinians
into peace talks. (We don’t know exactly what happened but we are told that Mr. Obama relied more on the
judgment of his political advisers — specifically his chief of staff, Rahm Emanuel — than of his Mideast
specialists.) ...
...Mr. Netanyahu has since offered a compromise 10-month freeze that exempts Jerusalem, schools and
synagogues and permits Israel to complete 3,000 housing units already under construction. The irony is that
while this offer goes beyond what past Israeli governments accepted, Mr. Obama had called for more. And
the Palestinians promptly rejected the compromise. ...
In Newsweek, Niall Ferguson says that the US must get its fiscal house in order if we are to
remain a global superpower, and thus to remain safe and keep our high standard of living.
...But if the United States succumbs to a fiscal crisis, as an increasing number of economic experts fear it
may, then the entire balance of global economic power could shift. Military experts talk as if the president's
decision about whether to send an additional 40,000 troops to Afghanistan is a make-or-break moment. In
reality, his indecision about the deficit could matter much more for the country's long-term national security.
Call the United States what you like—superpower, hegemon, or empire—but its ability to manage its
finances is closely tied to its ability to remain the predominant global military power. ...
...As interest payments eat into the budget, something has to give—and that something is nearly always
defense expenditure. According to the CBO, a significant decline in the relative share of national security in
the federal budget is already baked into the cake. On the Pentagon's present plan, defense spending is set
to fall from above 4 percent now to 3.2 percent of GDP in 2015 and to 2.6 percent of GDP by 2028.
Over the longer run, to my own estimated departure date of 2039, spending on health care rises from 16
percent to 33 percent of GDP (some of the money presumably is going to keep me from expiring even
sooner). But spending on everything other than health, Social Security, and interest payments drops from 12
percent to 8.4 percent.
This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the
resources available for the Army, Navy, and Air Force. Which is why voters are right to worry about
America's debt crisis. According to a recent Rasmussen report, 42 percent of Americans now say that
cutting the deficit in half by the end of the president's first term should be the administration's most important
task—significantly more than the 24 percent who see health-care reform as the No. 1 priority. But cutting the
deficit in half is simply not enough. If the United States doesn't come up soon with a credible plan to restore
the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could
lead to a major weakening of American power.
The precedents are certainly there. Habsburg Spain defaulted on all or part of its debt 14 times between
1557 and 1696 and also succumbed to inflation due to a surfeit of New World silver. Prerevolutionary France
was spending 62 percent of royal revenue on debt service by 1788. The Ottoman Empire went the same
way: interest payments and amortization rose from 15 percent of the budget in 1860 to 50 percent in 1875.
And don't forget the last great English-speaking empire. By the interwar years, interest payments were
consuming 44 percent of the British budget, making it intensely difficult to rearm in the face of a new
German threat.
Call it the fatal arithmetic of imperial decline. Without radical fiscal reform, it could apply to America next.
In the WSJ, Fred Barnes reviews the mistakes that have cost the president much of his political
capital
...First, Mr. Obama misread the meaning of the 2008 election. It wasn't a mandate for a liberal revolution. His
victory was a personal one, not an ideological triumph of liberalism. Yet Mr. Obama, his aides and
Democratic leaders in Congress have treated it as a mandate to radically change policy directions in this
country. They are pushing forward one liberal initiative after another. As a result, Mr. Obama's approval
rating has dropped along with the popularity of his agenda. ...
...Second, Mr. Obama misread his own ability to sway the public. He is a glib, cool, likeable speaker whose
sentences have subjects and verbs. During the campaign, he gave dazzling speeches about hope and
change that excited voters. ...
...But campaign speeches don't have to be specific, and candidates aren't accountable. Presidential
speeches are different. The object is to persuade voters to back a certain policy, and it turns out Mr. Obama
is not good at this. He failed to stop the steady decline in support for any of his policies, most notably health
care. ...
...Third, Mr. Obama misread Republicans. They felt weak and vulnerable after losing two straight
congressional elections and watching John McCain's presidential bid fall flat. They were afraid to criticize the
newly elected president. If he had offered them minimal concessions, many of them would have jumped
aboard his policies. If that had happened, the president could have boasted of achieving bipartisan
compromise on the stimulus and other policies. He let the chance slip away. ...
Thomas Sowell explains that every politician in Washington thinks his job is to take care of
himself.
No one will really understand politics until they understand that politicians are not trying to solve our
problems. They are trying to solve their own problems— of which getting elected and re-elected are number
one and number two. Whatever is number three is far behind. ...
...The current economic downturn that has cost millions of people their jobs began with successive
administrations of both parties pushing banks and other lenders to make mortgage loans to people whose
incomes, credit history and inability or unwillingness to make a substantial down payment on a house made
them bad risks.
Was that stupid? Not at all. The money that was being put at risk was not the politicians' money, and in most
cases was not even the government's money. Moreover, the jobs that are being lost by the millions are not
the politicians' jobs— and jobs in the government's bureaucracies are increasing. ...
...Very few people are likely to connect the dots back to those members of Congress who voted for bigger
mortgage guarantees and bailouts by the FHA. So the Congressmen's and the bureaucrats' jobs are safe,
even if millions of other people's jobs are not. ...
Investor's Business Daily has an article from Svetlana Kunin, a Soviet refugee who has
understands the evils of socialism.
...When I came to America in 1980 and experienced life in this country, I thought it was fortunate that those
living in the USSR did not know how unfortunate they were.
Now in 2009, I realize how unfortunate it is that many Americans do not understand how fortunate they are.
They vote to give government more and more power without understanding the consequences.
Telegraph, UK
Climate change: this is the worst scientific scandal of our generation
Our hopelessly compromised scientific establishment cannot be allowed to get away with the
Climategate whitewash.
by Christopher Booker
A week after my colleague James Delingpole, on his Telegraph blog, coined the term "Climategate" to
describe the scandal revealed by the leaked emails from the University of East Anglia's Climatic Research
Unit, Google was showing that the word now appears across the internet more than nine million times. But in
all these acres of electronic coverage, one hugely relevant point about these thousands of documents has
largely been missed.
The reason why even the Guardian's George Monbiot has expressed total shock and dismay at the picture
revealed by the documents is that their authors are not just any old bunch of academics. Their importance
cannot be overestimated, What we are looking at here is the small group of scientists who have for years
been more influential in driving the worldwide alarm over global warming than any others, not least through
the role they play at the heart of the UN's Intergovernmental Panel on Climate Change (IPCC).
Professor Philip Jones, the CRU's director, is in charge of the two key sets of data used by the IPCC to draw
up its reports. Through its link to the Hadley Centre, part of the UK Met Office, which selects most of the
IPCC's key scientific contributors, his global temperature record is the most important of the four sets of
temperature data on which the IPCC and governments rely – not least for their predictions that the world will
warm to catastrophic levels unless trillions of dollars are spent to avert it.
Dr Jones is also a key part of the closely knit group of American and British scientists responsible for
promoting that picture of world temperatures conveyed by Michael Mann's "hockey stick" graph which 10
years ago turned climate history on its head by showing that, after 1,000 years of decline, global
temperatures have recently shot up to their highest level in recorded history.
Given star billing by the IPCC, not least for the way it appeared to eliminate the long-accepted Mediaeval
Warm Period when temperatures were higher they are today, the graph became the central icon of the
entire man-made global warming movement.
Since 2003, however, when the statistical methods used to create the "hockey stick" were first exposed as
fundamentally flawed by an expert Canadian statistician Steve McIntyre, an increasingly heated battle has
been raging between Mann's supporters, calling themselves "the Hockey Team", and McIntyre and his own
allies, as they have ever more devastatingly called into question the entire statistical basis on which the
IPCC and CRU construct their case.
The senders and recipients of the leaked CRU emails constitute a cast list of the IPCC's scientific elite,
including not just the "Hockey Team", such as Dr Mann himself, Dr Jones and his CRU colleague Keith
Briffa, but Ben Santer, responsible for a highly controversial rewriting of key passages in the IPCC's 1995
report; Kevin Trenberth, who similarly controversially pushed the IPCC into scaremongering over hurricane
activity; and Gavin Schmidt, right-hand man to Al Gore's ally Dr James Hansen, whose own GISS record of
surface temperature data is second in importance only to that of the CRU itself.
There are three threads in particular in the leaked documents which have sent a shock wave through
informed observers across the world. Perhaps the most obvious, as lucidly put together by Willis
Eschenbach (see McIntyre's blog Climate Audit and Anthony Watt's blog Watts Up With That), is the highly
disturbing series of emails which show how Dr Jones and his colleagues have for years been discussing the
devious tactics whereby they could avoid releasing their data to outsiders under freedom of information
laws.
They have come up with every possible excuse for concealing the background data on which their findings
and temperature records were based.
This in itself has become a major scandal, not least Dr Jones's refusal to release the basic data from which
the CRU derives its hugely influential temperature record, which culminated last summer in his startling
claim that much of the data from all over the world had simply got "lost". Most incriminating of all are the
emails in which scientists are advised to delete large chunks of data, which, when this is done after receipt
of a freedom of information request, is a criminal offence.
But the question which inevitably arises from this systematic refusal to release their data is – what is it that
these scientists seem so anxious to hide? The second and most shocking revelation of the leaked
documents is how they show the scientists trying to manipulate data through their tortuous computer
programmes, always to point in only the one desired direction – to lower past temperatures and to "adjust"
recent temperatures upwards, in order to convey the impression of an accelerated warming. This comes up
so often (not least in the documents relating to computer data in the Harry Read Me file) that it becomes the
most disturbing single element of the entire story. This is what Mr McIntyre caught Dr Hansen doing with his
GISS temperature record last year (after which Hansen was forced to revise his record), and two further
shocking examples have now come to light from Australia and New Zealand.
In each of these countries it has been possible for local scientists to compare the official temperature record
with the original data on which it was supposedly based. In each case it is clear that the same trick has been
played – to turn an essentially flat temperature chart into a graph which shows temperatures steadily rising.
And in each case this manipulation was carried out under the influence of the CRU.
What is tragically evident from the Harry Read Me file is the picture it gives of the CRU scientists hopelessly
at sea with the complex computer programmes they had devised to contort their data in the approved
direction, more than once expressing their own desperation at how difficult it was to get the desired results.
The third shocking revelation of these documents is the ruthless way in which these academics have been
determined to silence any expert questioning of the findings they have arrived at by such dubious methods –
not just by refusing to disclose their basic data but by discrediting and freezing out any scientific journal
which dares to publish their critics' work. It seems they are prepared to stop at nothing to stifle scientific
debate in this way, not least by ensuring that no dissenting research should find its way into the pages of
IPCC reports.
Back in 2006, when the eminent US statistician Professor Edward Wegman produced an expert report for
the US Congress vindicating Steve McIntyre's demolition of the "hockey stick", he excoriated the way in
which this same "tightly knit group" of academics seemed only too keen to collaborate with each other and
to "peer review" each other's papers in order to dominate the findings of those IPCC reports on which much
of the future of the US and world economy may hang. In light of the latest revelations, it now seems even
more evident that these men have been failing to uphold those principles which lie at the heart of genuine
scientific enquiry and debate. Already one respected US climate scientist, Dr Eduardo Zorita, has called for
Dr Mann and Dr Jones to be barred from any further participation in the IPCC. Even our own George
Monbiot, horrified at finding how he has been betrayed by the supposed experts he has been revering and
citing for so long, has called for Dr Jones to step down as head of the CRU.
The former Chancellor Lord (Nigel) Lawson, last week launching his new think tank, the Global Warming
Policy Foundation, rightly called for a proper independent inquiry into the maze of skulduggery revealed by
the CRU leaks. But the inquiry mooted on Friday, possibly to be chaired by Lord Rees, President of the
Royal Society – itself long a shameless propagandist for the warmist cause – is far from being what Lord
Lawson had in mind. Our hopelessly compromised scientific establishment cannot be allowed to get away
with a whitewash of what has become the greatest scientific scandal of our age
Hot Air
NYT: Obama’s an amateur
by Ed Morrissey
It only took them three years to figure it out, of course. The Gray Lady’s ire focuses on the disaster Obama
has made of the Israeli-Palestinian peace process, which is usually a rolling disaster anyway. American
Presidents haven’t been able to do much to make it better, but as the Times explains, this one’s made it a lot
worse than it had to be — mainly because he’s a diplomatic novice with team full of incompetents (via Geoff
A):
Peacemaking takes strategic skill. But we see no sign that President Obama and Mr. Mitchell were thinking
more than one move down the board. The president went public with his demand for a full freeze on
settlements before securing Israel’s commitment. And he and his aides apparently had no plan for what they
would do if Prime Minister Benjamin Netanyahu said no.
Most important, they allowed the controversy to obscure the real goal: nudging Israel and the Palestinians
into peace talks. (We don’t know exactly what happened but we are told that Mr. Obama relied more on the
judgment of his political advisers — specifically his chief of staff, Rahm Emanuel — than of his Mideast
specialists.)
The idea made sense: have each side do something tangible to prove it was serious about peace and then
start negotiations. But when Mr. Netanyahu refused the total freeze, President Obama backed down.
Mr. Netanyahu has since offered a compromise 10-month freeze that exempts Jerusalem, schools and
synagogues and permits Israel to complete 3,000 housing units already under construction. The irony is that
while this offer goes beyond what past Israeli governments accepted, Mr. Obama had called for more. And
the Palestinians promptly rejected the compromise.
The editors go on to castigate George Mitchell a little more for blowing the effort with the Saudis, who took
their signals from Team Obama. When Obama publicly demanded a halt to all settlements, the Saudis
made that their line in the sand. The Times scolds them for doing so, but the fact is that once the US made
that demand, it put all the pressure on Israel and took all the pressure off of the other parties in the talks.
As the editorial says, Obama and Mitchell couldn’t think past their own opening move and game out the
possibilities. Why might that be? The foreign-policy team that includes Emanuel and Samantha Power (at
the National Security Council) has ideological interests in getting Israel to surrender. Power suggested a
few years ago that the Western nations should invade and occupy Israel in order to set the Palestinians
free. With that kind of advice flowing at the White House, this diktat on settlements is hardly surprising, nor
is its end result.
When Newsweek and the New York Times tells a Democratic president that he’s screwing up foreign policy,
it’s time to clean house and start getting professional help. Unfortunately, neither of these publications
considered the ramifications of endorsing an inexperienced ideologue for the top job when it counted.
NY Times -- Editorial
Diplomacy 101
We were thrilled when President Obama decided to plunge fully into the Middle East peace effort. He
appointed a skilled special envoy, George Mitchell, and demanded that Israel freeze settlements,
Palestinians crack down on anti-Israel violence and Arab leaders demonstrate their readiness to reach out to
Israel.
Nine months later, the president’s promising peace initiative has unraveled.
The Israelis have refused to stop all building. The Palestinians say that they won’t talk to the Israelis until
they do, and President Mahmoud Abbas is so despondent he has threatened to quit. Arab states are
refusing to do anything.
Mr. Obama’s own credibility is so diminished (his approval rating in Israel is 4 percent) that serious
negotiations may be farther off than ever.
Peacemaking takes strategic skill. But we see no sign that President Obama and Mr. Mitchell were thinking
more than one move down the board. The president went public with his demand for a full freeze on
settlements before securing Israel’s commitment. And he and his aides apparently had no plan for what they
would do if Prime Minister Benjamin Netanyahu said no.
Most important, they allowed the controversy to obscure the real goal: nudging Israel and the Palestinians
into peace talks. (We don’t know exactly what happened but we are told that Mr. Obama relied more on the
judgment of his political advisers — specifically his chief of staff, Rahm Emanuel — than of his Mideast
specialists.)
The idea made sense: have each side do something tangible to prove it was serious about peace and then
start negotiations. But when Mr. Netanyahu refused the total freeze, President Obama backed down.
Mr. Netanyahu has since offered a compromise 10-month freeze that exempts Jerusalem, schools and
synagogues and permits Israel to complete 3,000 housing units already under construction. The irony is that
while this offer goes beyond what past Israeli governments accepted, Mr. Obama had called for more. And
the Palestinians promptly rejected the compromise.
Washington isn’t the only one to blow it. After pushing President Obama to lead the peace effort, Arab
states, especially Saudi Arabia, refused to make any concessions until settlements were halted. Mr. Mitchell
was asking them to allow Israel to fly commercial planes through Arab airspace or open a trade office. They
have also done far too little to strengthen Mr. Abbas, who is a weak leader but is still the best hope for
negotiating a peace deal. Ditto for Washington and Israel.
All this raises two questions: What has President Obama learned from the experience so he can improve his
diplomatic performance generally? And does he plan to revive the peace talks?
The president has no choice but to keep trying. At some point extremists will try to provoke another war. and
the absence of a dialogue will only make things worse. Advancing his own final-status plan for a two-state
solution is one high-risk way forward that we think is worth the gamble. Stalemate is unsustainable.
Newsweek
An Empire at Risk
We won the cold war and weathered 9/11. But now economic weakness is endangering our global
power.
by Niall Ferguson
Call it the fractal geometry of fiscal crisis. If you fly across the Atlantic on a clear day, you can look down and
see the same phenomenon but on four entirely different scales. At one extreme there is tiny Iceland. Then
there is little Ireland, followed by medium-size Britain. They're all a good deal smaller than the mighty United
States. But in each case the economic crisis has taken the same form: a massive banking crisis, followed by
an equally massive fiscal crisis as the government stepped in to bail out the private financial system.
Size matters, of course. For the smaller countries, the financial losses arising from this crisis are a great deal
larger in relation to their gross domestic product than they are for the United States. Yet the stakes are
higher in the American case. In the great scheme of things—let's be frank—it does not matter much if
Iceland teeters on the brink of fiscal collapse, or Ireland, for that matter. The locals suffer, but the world goes
on much as usual.
But if the United States succumbs to a fiscal crisis, as an increasing number of economic experts fear it
may, then the entire balance of global economic power could shift. Military experts talk as if the president's
decision about whether to send an additional 40,000 troops to Afghanistan is a make-or-break moment. In
reality, his indecision about the deficit could matter much more for the country's long-term national security.
Call the United States what you like—superpower, hegemon, or empire—but its ability to manage its
finances is closely tied to its ability to remain the predominant global military power. Here's why.
The disciples of John Maynard Keynes argue that increasing the federal debt by roughly a third was
necessary to avoid Depression 2.0. Well, maybe, though some would say the benefits of fiscal stimulus have
been oversold and that the magic multiplier (which is supposed to transform $1 of government spending into
a lot more than $1 of aggregate demand) is trivially small.
Credit where it's due. The positive number for third-quarter growth in the United States would have been a
lot lower without government spending. Between half and two thirds of the real increase in gross domestic
product was attributable to government programs, especially the Cash for Clunkers scheme and the subsidy
to first-time home buyers. But we are still a very long way from a self--sustaining recovery. The third-quarter
growth number has just been revised downward from 3.5 percent to 2.8 percent. And that's not wholly
surprising. Remember, what makes a stimulus actually work is the change in borrowing by the whole public
sector. Since the federal government was already running deficits, and since the states are actually raising
taxes and cutting spending, the actual size of the stimulus is closer to 4 percent of GDP spread over the
years 2007 to 2010—a lot less than that headline 11.2 percent deficit.
Meanwhile, let's consider the cost of this muted stimulus. The deficit for the fiscal year 2009 came in at more
than $1.4 trillion—about 11.2 percent of GDP, according to the Congressional Budget Office (CBO). That's a
bigger deficit than any seen in the past 60 years—only slightly larger in relative terms than the deficit in
1942. We are, it seems, having the fiscal policy of a world war, without the war. Yes, I know, the United
States is at war in Afghanistan and still has a significant contingent of troops in Iraq. But these are trivial
conflicts compared with the world wars, and their contribution to the gathering fiscal storm has in fact been
quite modest (little more than 1.8 percent of GDP, even if you accept the estimated cumulative cost of $3.2
trillion published by Columbia economist Joseph Stiglitz in February 2008).
And that $1.4 trillion is just for starters. According to the CBO's most recent projections, the federal deficit
will decline from 11.2 percent of GDP this year to 9.6 percent in 2010, 6.1 percent in 2011, and 3.7 percent
in 2012. After that it will stay above 3 percent for the foreseeable future. Meanwhile, in dollar terms, the total
debt held by the public (excluding government agencies, but including foreigners) rises from $5.8 trillion in
2008 to $14.3 trillion in 2019—from 41 percent of GDP to 68 percent.
In other words, there is no end in sight to the borrowing binge. Unless entitlements are cut or taxes are
raised, there will never be another balanced budget. Let's assume I live another 30 years and follow my
grandfathers to the grave at about 75. By 2039, when I shuffle off this mortal coil, the federal debt held by
the public will have reached 91 percent of GDP, according to the CBO's extended baseline projections.
Nothing to worry about, retort -deficit-loving economists like Paul Krugman. In 1945, the figure was 113
percent.
Well, let's leave aside the likely huge differences between the United States in 1945 and in 2039. Consider
the simple fact that under the CBO's alternative (i.e., more pessimistic) fiscal scenario, the debt could hit 215
percent by 2039. That's right: more than double the annual output of the entire U.S. economy.
Forecasting anything that far ahead is not about predicting the future. Everything hinges on the assumptions
you make about demographics, Medicare costs, and a bunch of other variables. For example, the CBO
assumes an average annual real GDP growth rate of 2.3 percent over the next 30 years. The point is to
show the implications of the current chronic imbalance between federal spending and federal revenue. And
the implication is clear. Under no plausible scenario does the debt burden decline. Under one of two
plausible scenarios it explodes by a factor of nearly five in relation to economic output.
Another way of doing this kind of exercise is to calculate the net present value of the unfunded liabilities of
the Social Security and Medicare systems. One recent estimate puts them at about $104 trillion, 10 times
the stated federal debt.
No sweat, reply the Keynesians. We can easily finance $1 trillion a year of new government debt. Just look
at the way Japan's households and financial institutions funded the explosion of Japanese public debt (up to
200 percent of GDP) during the two "lost decades" of near-zero growth that began in 1990.
Unfortunately for this argument, the evidence to support it is lacking. American households were, in fact, net
sellers of Treasuries in the second quarter of 2009, and on a massive scale. Purchases by mutual funds
were modest ($142 billion), while purchases by pension funds and insurance companies were trivial ($12
billion and $10 billion, respectively). The key, therefore, becomes the banks. Currently, according to the
Bridgewater hedge fund, U.S. banks' asset allocation to government bonds is about 13 percent, which is
relatively low by historical standards. If they raised that proportion back to where it was in the early 1990s,
it's conceivable they could absorb "about $250 billion a year of government bond purchases." But that's a
big "if." Data for October showed commercial banks selling Treasuries.
That just leaves two potential buyers: the Federal Reserve, which bought the bulk of Treasuries issued in
the second quarter; and foreigners, who bought $380 billion. Morgan Stanley's analysts have crunched the
numbers and concluded that, in the year ending June 2010, there could be a shortfall in demand on the
order of $598 billion—about a third of projected new issuance.
Of course, our friends in Beijing could ride to the rescue by increasing their already vast holdings of U.S.
government debt. For the past five years or so, they have been amassing dollar--denominated international
reserves in a wholly unprecedented way, mainly as a result of their interventions to prevent the Chinese
currency from appreciating against the dollar.
Right now, the People's Republic of China holds about 13 percent of U.S. government bonds and notes in
public hands. At the peak of this process of reserve accumulation, back in 2007, it was absorbing as much
as 75 percent of monthly Treasury issuance.
But there's no such thing as a free lunch in the realm of international finance. According to Fred Bergsten of
the Peterson Institute for International Economics, if this trend were to continue, the U.S. -current-account
deficit could rise to 15 percent of GDP by 2030, and its net debt to the rest of the world could hit 140 percent
of GDP. In such a scenario, the U.S. would have to pay as much as 7 percent of GDP every year to
foreigners to service its external borrowings.
Could that happen? I doubt it. For one thing, the Chinese keep grumbling that they have far too many
Treasuries already. For another, a significant dollar depreciation seems more probable, since the United
States is in the lucky position of being able to borrow in its own currency, which it reserves the right to print
in any quantity the Federal Reserve chooses.
Now, who said the following? "My prediction is that politicians will eventually be tempted to resolve the
[fiscal] crisis the way irresponsible governments usually do: by printing money, both to pay current bills and
to inflate away debt. And as that temptation becomes obvious, interest rates will soar."
Seems pretty reasonable to me. The surprising thing is that this was none other than Paul Krugman, the
high priest of Keynesianism, writing back in March 2003. A year and a half later he was comparing the U.S.
deficit with Argentina's (at a time when it was 4.5 percent of GDP). Has the economic situation really
changed so drastically that now the same Krugman believes it was "deficits that saved us," and wants to see
an even larger deficit next year? Perhaps. But it might just be that the party in power has changed.
History strongly supports the proposition that major financial crises are followed by major fiscal crises. "On
average," write Carmen Reinhart and Kenneth Rogoff in their new book, This Time Is Different, "government
debt rises by 86 percent during the three years following a banking crisis." In the wake of these debt
explosions, one of two things can happen: either a default, usually when the debt is in a foreign currency, or
a bout of high inflation that catches the creditors out. The history of all the great European empires is replete
with such episodes. Indeed, serial default and high inflation have tended to be the surest symptoms of
imperial decline.
As the U.S. is unlikely to default on its debt, since it's all in dollars, the key question, therefore, is whether we
are going to see the Fed "printing money"—buying newly minted Treasuries in exchange for even more
newly minted greenbacks—followed by the familiar story of rising prices and declining real-debt burdens. It's
a scenario many investors around the world fear. That is why they are selling dollars. That is why they are
buying gold.
Yet from where I am sitting, inflation is a pretty remote prospect. With U.S. unemployment above 10 percent,
labor unions relatively weak, and huge quantities of unused capacity in global manufacturing, there are none
of the pressures that made for stagflation (low growth plus high prices) in the 1970s. Public expectations of
inflation are also very stable, as far as can be judged from poll data and the difference between the yields on
regular and inflation-protected bonds.
So here's another scenario—which in many ways is worse than the inflation scenario. What happens is that
we get a rise in the real interest rate, which is the actual interest rate minus inflation. According to a
substantial amount of empirical research by economists, including Peter Orszag (now at the Office of
Management and Budget), significant increases in the debt-to-GDP ratio tend to increase the real interest
rate. One recent study concluded that "a 20 percentage point increase in the U.S. government-debt-to-GDP
ratio should lead to a 20–120 basis points [0.2–1.2 percent] increase in real interest rates." This can happen
in one of three ways: the nominal interest rate rises and inflation stays the same; the nominal rate stays the
same and inflation falls; or—the nightmare case—the nominal interest rate rises and inflation falls.
Today's Keynesians deny that this can happen. But the historical evidence is against them. There are a
number of past cases (e.g., France in the 1930s) when nominal rates have risen even at a time of deflation.
What's more, it seems to be happening in Japan right now. Just last week Hirohisa Fujii, Japan's new
finance minister, admitted that he was "highly concerned" about the recent rise in Japanese government
bond yields. In the very same week, the government admitted that Japan was back in deflation after three
years of modest price increases.
It's not inconceivable that something similar could happen to the United States. Foreign investors might ask
for a higher nominal return on U.S. Treasuries to compensate them for the weakening dollar. And inflation
might continue to surprise us on the downside. After all, consumer price inflation is in negative territory right
now.
Why should we fear rising real interest rates ahead of inflation? The answer is that for a heavily indebted
government and an even more heavily indebted public, they mean an increasingly heavy debt-service
burden. The relatively short duration (maturity) of most of these debts means that a large share has to be
rolled over each year. That means any rise in rates would feed through the system scarily fast.
Already, the federal government's interest payments are forecast by the CBO to rise from 8 percent of
revenues in 2009 to 17 percent by 2019, even if rates stay low and growth resumes. If rates rise even
slightly and the economy flatlines, we'll get to 20 percent much sooner. And history suggests that once you
are spending as much as a fifth of your revenues on debt service, you have a problem. It's all too easy to
find yourself in a vicious circle of diminishing credibility. The investors don't believe you can afford your
debts, so they charge higher interest, which makes your position even worse.
This matters more for a superpower than for a small Atlantic island for one very simple reason. As interest
payments eat into the budget, something has to give—and that something is nearly always defense
expenditure. According to the CBO, a significant decline in the relative share of national security in the
federal budget is already baked into the cake. On the Pentagon's present plan, defense spending is set to
fall from above 4 percent now to 3.2 percent of GDP in 2015 and to 2.6 percent of GDP by 2028.
Over the longer run, to my own estimated departure date of 2039, spending on health care rises from 16
percent to 33 percent of GDP (some of the money presumably is going to keep me from expiring even
sooner). But spending on everything other than health, Social Security, and interest payments drops from 12
percent to 8.4 percent.
This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the
resources available for the Army, Navy, and Air Force. Which is why voters are right to worry about
America's debt crisis. According to a recent Rasmussen report, 42 percent of Americans now say that
cutting the deficit in half by the end of the president's first term should be the administration's most important
task—significantly more than the 24 percent who see health-care reform as the No. 1 priority. But cutting the
deficit in half is simply not enough. If the United States doesn't come up soon with a credible plan to restore
the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could
lead to a major weakening of American power.
The precedents are certainly there. Habsburg Spain defaulted on all or part of its debt 14 times between
1557 and 1696 and also succumbed to inflation due to a surfeit of New World silver. Prerevolutionary France
was spending 62 percent of royal revenue on debt service by 1788. The Ottoman Empire went the same
way: interest payments and amortization rose from 15 percent of the budget in 1860 to 50 percent in 1875.
And don't forget the last great English-speaking empire. By the interwar years, interest payments were
consuming 44 percent of the British budget, making it intensely difficult to rearm in the face of a new
German threat.
Call it the fatal arithmetic of imperial decline. Without radical fiscal reform, it could apply to America next.
Ferguson is Laurence A. Tisch professor of history at Harvard and the author of The Ascent of Money.
WSJ
Why Obama Isn't Changing Washington
There is no way he can grow the government without attracting more lobbyists and more political
acrimony.
by Fred Barnes
One insight distinguished Barack Obama from the other presidential candidates last year. While he lacked
experience or a special grasp of issues, Mr. Obama said he uniquely understood what ails Washington, and
what was causing the endless squabbling and bitter stalemate on important issues. If elected, he said he
would change the way business is done in Washington, end the partisan deadlock and the ideological
polarization.
"Change must come to Washington," Mr. Obama said in a June 2008 speech. "I have consistently said when
it comes to solving problems," he told Jake Tapper of ABC News that same month, "I don't approach this
from a partisan or ideological perspective."
Mr. Obama also decried the prominent role played by lobbyists. "Lobbyists aren't just a part of the system in
Washington, they're part of the problem," Mr. Obama said in a May 2008 campaign speech.
I was reminded of this last statement by a recent headline on the front page of USA Today. It read: "Health
care fight swells lobbying. Number of organizations hiring firms doubles in '09." The article suggested that
what Mr. Obama had promised to fix had only gotten worse.
Indeed that's the case. Washington is more partisan than ever, and more polarized. Even on a purely
procedural vote to begin Senate debate on health-care reform this past Saturday, every Democrat voted one
way (yes), every Republican the other (no).
With rare exception and with no objection from the president, Democrats draft bills with no input from
Republicans. In return, Republicans vote in lockstep against Democratic legislation. Every House
Republican voted against the stimulus, all but one against liberal health-care reform, and all but eight
against cap-and-trade legislation that passed the House earlier this year.
Why has the president's publicly expressed vision of a kinder, gentler Washington failed to materialize? I
think Mr. Obama—while hardly the only person at fault—is chiefly responsible.
He might have spawned a different Washington, a less divided town with Democrats firmly in charge but
Republicans actively involved. The bonus for Mr. Obama and Democrats would be higher popularity and
better prospects in 2010 midterm elections. Instead, the president made three strategic mistakes—or, really,
misreadings of the political landscape—and they've come back to haunt him and his party.
First, Mr. Obama misread the meaning of the 2008 election. It wasn't a mandate for a liberal revolution. His
victory was a personal one, not an ideological triumph of liberalism. Yet Mr. Obama, his aides and
Democratic leaders in Congress have treated it as a mandate to radically change policy directions in this
country. They are pushing forward one liberal initiative after another. As a result, Mr. Obama's approval
rating has dropped along with the popularity of his agenda.
Mr. Obama should have known better. The evidence that America remains a center-right country was right
there in the national exit poll on Election Day. When asked about their political beliefs, 34% identified
themselves as conservative, 22% as liberal, and a whopping 44% as moderate.
As Mr. Obama has unveiled his policies, the country has tilted more to the right. A Gallup Poll on Oct. 21
found the country to be 40% conservative, 36% moderate, and 20% liberal.
Nearly every Obama policy has thrilled either the president's base in the Democratic Party or a liberal
interest group but practically no one else. Nearly every policy is unpopular with a majority or large plurality of
Americans. The $787 billion economic stimulus was enacted in February with strong public support. But it
has long since lost favor.
It should have been no surprise the public gave a thumbs down to Mr. Obama policies. The decision to close
the prison in Guantanamo, the takeover of General Motors and Chrysler, the bailout of banks and financial
institutions (begun under President George W. Bush), the trillion-dollar deficits, cap and trade, the surge in
the size and scope of the federal government—these were out of sync with the country's right-of-center
majority.
Mr. Obama argued in his Feb. 24 address to Congress that health-care reform, billions in new education
spending, and cap and trade to reduce carbon emissions were necessary to revive the economy. This was a
clever attempt to exploit the recession to pass unrelated liberal policies. It was too clever. It didn't work.
Second, Mr. Obama misread his own ability to sway the public. He is a glib, cool, likeable speaker whose
sentences have subjects and verbs. During the campaign, he gave dazzling speeches about hope and
change that excited voters. His late-night speech at a Democratic dinner in Des Moines on Nov. 10, 2007,
prior to the Iowa caucuses, convinced me he'd win the presidential nomination.
But campaign speeches don't have to be specific, and candidates aren't accountable. Presidential speeches
are different. The object is to persuade voters to back a certain policy, and it turns out Mr. Obama is not
good at this. He failed to stop the steady decline in support for any of his policies, most notably health care.
The president spent much of the summer and early fall touting his health-care initiative. He spoke at town
halls, appeared on five Sunday talk shows the same day (Sept. 20), turned up on "The Late Show with
David Letterman" and on "60 Minutes." All the while, support for ObamaCare fell. His address to Congress
on health care on Sept. 9 is now remembered only for Republican Rep. Joe Wilson's shouted accusation,
"You lie!"
Third, Mr. Obama misread Republicans. They felt weak and vulnerable after losing two straight
congressional elections and watching John McCain's presidential bid fall flat. They were afraid to criticize the
newly elected president. If he had offered them minimal concessions, many of them would have jumped
aboard his policies. If that had happened, the president could have boasted of achieving bipartisan
compromise on the stimulus and other policies. He let the chance slip away.
By March, tea parties had begun cropping up across the country to protest spending in Washington. Over
the summer, independents moved away from Mr. Obama when they learned of the soaring cost of his
policies. By late summer, Republicans emerged as a full-blown opposition with growing public backing.
The point in all this is Mr. Obama could have given a little and gained a lot. To change Washington, he
would have had to corral congressional Democrats, who weren't interested in bipartisanship or compromise.
He would have had to disappoint his base and, at times, anger liberal interest groups. Mr. Obama wasn't
willing to go that route.
In Washington it's business as usual, except for one thing. The bigger the role of government, the more
lobbyists flock to town. By pushing for his policies, the president effectively put up a welcome sign to
lobbyists. Despite promising to keep them out of his administration, he has even hired a few. So nothing has
changed, except maybe that Washington is now more acrimonious than it has been.
Mr. Barnes is executive editor of the Weekly Standard and a commentator on Fox News Channel.
Jewish World Review
Solving Whose Problem?
by Thomas Sowell
No one will really understand politics until they understand that politicians are not trying to solve our
problems. They are trying to solve their own problems— of which getting elected and re-elected are number
one and number two. Whatever is number three is far behind.
Many of the things the government does that may seem stupid are not stupid at all, from the standpoint of
the elected officials or bureaucrats who do these things.
The current economic downturn that has cost millions of people their jobs began with successive
administrations of both parties pushing banks and other lenders to make mortgage loans to people whose
incomes, credit history and inability or unwillingness to make a substantial down payment on a house made
them bad risks.
Was that stupid? Not at all. The money that was being put at risk was not the politicians' money, and in most
cases was not even the government's money. Moreover, the jobs that are being lost by the millions are not
the politicians' jobs— and jobs in the government's bureaucracies are increasing.
No one pushed these reckless mortgage lending policies more than Congressman Barney Frank, who
brushed aside warnings about risk, and said in 2003 that he wanted to "roll the dice" even more in the
housing markets. But it would very rash to bet against Congressman Frank's getting re-elected in 2010.
After the cascade of economic disasters that began in the housing markets in 2006 and spread into the
financial markets in Wall Street and even overseas, people in the private sector pulled back. Banks stopped
making so many risky loans. Home buyers began buying homes they could afford, instead of going out on a
limb with "creative"— and risky— financing schemes to buy homes that were beyond their means.
But politicians went directly in the opposite direction. In the name of "rescuing" the housing market,
Congress passed laws enabling the Federal Housing Administration to insure more and bigger risky loans—
loans where there is less than a 4 percent down payment.
A recent news story told of three young men who chipped in a total of $33,000 to buy a home in San
Francisco that cost nearly a million dollars. Why would a bank lend that kind of money to them on such a
small down payment? Because the loan was insured by the Federal Housing Administration.
The bank wasn't taking any risk. If the three guys defaulted, the bank could always collect the money from
the Federal Housing Administration. The only risk was to the taxpayers.
Does the Federal Housing Administration have unlimited money to bail out bad loans? Actually there have
been so many defaults that the FHA's own reserves have dropped below where they are supposed to be.
But not to worry. There will always be taxpayers, not to mention future generations to pay off the national
debt.
Very few people are likely to connect the dots back to those members of Congress who voted for bigger
mortgage guarantees and bailouts by the FHA. So the Congressmen's and the bureaucrats' jobs are safe,
even if millions of other people's jobs are not.
Congressman Barney Frank is not about to cut back on risky mortgage loan guarantees by the FHA. He
recently announced that he plans to introduce legislation to raise the limit on FHA loan guarantees even
more.
Congressman Frank will make himself popular with people who get those loans and with banks that make
these high-risk loans where they can pocket the profits and pass the risk on to the FHA.
So long as the taxpayers don't understand that all this political generosity and compassion are at their
expense, Barney Frank is an odds-on favorite to get re-elected. The man is not stupid.
What is stupid is believing that politicians are trying to solve our problems, instead of theirs.
As for the FHA running low on money, that is not about to stop the gravy train, certainly not with an election
coming up in 2010.
The Federal Deposit Insurance Corporation is also running low on money. But that is not going to stop them
from insuring bank accounts up to a quarter of a million dollars. It would be stupid for them to stop with an
election coming up in 2010
Investor's Business Daily
The Perspective Of A Russian Immigrant
by Svetlana Kunin
In the Union of Soviet Socialist Republics, I was taught to believe individual pursuits are selfish and
sacrificing for the collective good is noble.
In kindergarten we sang songs about Lenin, the leader of the Socialist Revolution. In school we learned
about the beautiful socialist system, where everybody is equal and everything is fair; about ugly capitalism,
where people are exploited and treat each other like wolves in the wilderness.
Life in the USSR modeled the socialist ideal. God-based religion was suppressed and replaced with cultlike
adoration for political figures.
The government-assigned salary of the proletariat (blue-collar worker) was 30%-50% higher than any
professional. Without incentive to improve their life, professionals drank themselves to oblivion. They —
engineers, lawyers, doctors, teachers — earned a government-determined salary that barely covered the
necessities, mainly food.
Raising children was a hardship. It took four to six adults (parents and grandparents) to support a child. The
usual size of the postwar family was one or two children. Every woman had the right to have an abortion and
most of them did, often without anesthesia.
There is a comparative historical reality that plays out the consequences of two competing ideologies: life in
the USSR and in America.
When the march to the worker's paradise — the Socialist Revolution — began in 1917, many people
emigrated from Russia to the U.S.
In the USSR, economic equality was achieved by redistributing wealth, ensuring that everyone remained
poor, with the exception of those doing the redistributing. Only the ruling class of communist leaders had
access to special stores, medicine and accommodations that could compare to those in the West.
The rest of the citizenry had to deal with permanent shortages of food and other necessities, and had
access to free but inferior, unsanitary and low-tech medical care. The egalitarian utopia of equality, achieved
by the sacrifice of individual self-interest for the collective good, led to corruption, black markets, anger and
envy.
Government-controlled health care destroyed human dignity.
Chairman Nikita Khrushchev released facts about Stalin and his purges. People learned of the horrific purge
of more than 20 million citizens, murdered as enemies of the state.
Those who left Russia found a different set of values in America: freedom of religion, speech, individual
pursuits, the right to private property and free enterprise. The majority of those immigrants achieved a better
life for themselves and their children in this capitalist land.
These opportunities let the average immigrant live a better life than many elites in the Soviet Communist
Party. The freedom to pursue personal self-interest led to prosperity. Prosperity generated charity, benefiting
the collective good.
The descendants of those immigrants are now supporting policies that move America away from the values
that gave so many immigrants the chance of a better life. Policies such as nationalized medicine, high tax
rates and government intrusion into free enterprise are being sold to us under the socialistic motto of
collective salvation.
Socialism has bankrupted and failed every society, while capitalism has lifted more people out of poverty
than any other system.
There is no perfect society. There are no perfect people. Critics say that greed is the driving force of
capitalism. My answer is that envy is the driving force of socialism. Change to socialism is not an
improvement on the imperfections of the current system.
The slogans of "fairness and equality" sound better than the slogans of capitalism. But unlike at the
beginning of the 20th century, when these slogans and ideas were yet to be tested, we have accumulated
history and reality.
Today we can define the better system not by slogans, but by looking at the accumulated facts. We can
compare which ideology leads to the most oppression and which brings the most opportunity.
When I came to America in 1980 and experienced life in this country, I thought it was fortunate that those
living in the USSR did not know how unfortunate they were.
Now in 2009, I realize how unfortunate it is that many Americans do not understand how fortunate they are.
They vote to give government more and more power without understanding the consequences.
Svetlana Kunin, Stamford, Conn.
Editor's note: Mrs. Kunin, an IBD subscriber, is a retired software developer. In the Soviet Union, she was a
civil engineer.